Those deep-seated prohibitions, incorporated into the country’s constitution, require Americans and other foreigners to set up a Mexican bank trust if they want to hold property within roughly 31 miles of the coast and 62 miles from the border — the “restricted zones.” Foreigners must pay trust setup costs and possibly hundreds of dollars in yearly fees, and they still can’t own their properties directly.

But as Mexico seeks to modernize and liberalize its economy under new President Enrique Peña Nieto, and as bilateral trade continues to rise, some observers think there’s a good chance the real-estate barriers will come down sooner or later.

“If you talk to many Mexicans, they’ll say ‘open the gates’ because that would bring in jobs and investment,” said Carlos Sugich, an attorney from Mexico at Snell & Wilmer in Phoenix.

Legislation to remove the restricted-zone ownership barriers recently was introduced in Mexico’s Congress. As a constitutional reform, it would require approval not just at the national level but among slightly more than half of Mexico’s state legislatures.

It isn’t easy to change the Mexican constitution, and Mexico faces other major reform efforts. Sugich puts the odds at 50-50 that the foreign real-estate restrictions will come down over the next couple of years.

Those restrictions often are misconstrued by Americans and other foreigners. “People think they’re leases, which they aren’t,” Sugich said. “They think they’d lose their properties, which they wouldn’t.” But there are costs involved, often several hundred dollars or more a year to a bank, and they entail a set of rules that can be confusing to foreigners.

Essentially, the rules require a Mexican bank to be owner of restricted-zone property, with the foreigner listed as beneficiary. These arrangements are good for 50 years and can be renewed in 50-year increments.

“You can sell it or will it to your heirs, but the Mexican bank would be holding the pink slip to the property,” said Judith Wilson, an attorney with Tijuana law firm Bryan, González Vargas & González Baz, drawing an analogy to vehicle ownership.

Sugich and Wilson were among 100 or so attorneys participating in a U.S.-Mexico Bar Association conference in Phoenix last month.

Outside of the coastal and border restricted zones — technically 50 and 100 kilometers, respectively — foreigners don’t need a Mexican bank trust but must agree to be treated like a Mexican national, without invoking the protections of their own governments should disputes arise, Wilson said.

Somewhat different rules apply on commercial real-estate purchases.

The restricted-zone rules harken back to Mexican anxiety about foreign invasion, Sugich said. The 19th century began with Mexico still a colony of Spain, and the country was invaded both by the U.S. and France during the century.

But times continue to change, with global trade ties and tourism joining Mexico and the U.S. closer than ever.

“You have something (foreign property ownership) going on de facto, so why not get rid of (the restriction) in the Constitution?” Sugich said.

The added complexities of owning property in Mexico can make cross-border estate planning more cumbersome and expensive, said Michael Patterson, an attorney at Polsinelli P.C. in Phoenix and another speaker at the cross-border legal conference.

Since Americans must own residential real estate in restricted zones near the coast or border through a bank trust, one key problem arises if the American owner — technically, the beneficiary — dies without naming one or more successor beneficiaries.

That muddles transfer of the property and could require probate proceedings in the U.S. to be opened or even reopened, Patterson said. It also can necessitate an order from a Mexican judge to instruct the Mexican bank’s trust department to retitle the property in the name of the new American beneficiary. Patterson said he has been involved in a half-dozen cases where successor beneficiaries weren’t named or had died. In such cases, it can take a couple of years and thousands of dollars to sort things out, he said.

As another warning, Patterson cautioned Americans owning Mexican property in a limited liability company to make sure they’re up to date, especially because multiple ownership changes in an LLC can raise red flags in the minds of Mexican officials, who might deem that a sale has occurred.

The upshot for foreign property owners is to anticipate and plan for estate-planning snags, allowing more time to make updates than you would need on this side of the border.

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